November 15, 2017

India’s power distributors are balking at traditional 25-year thermal-power purchase contracts, avoiding lengthy entanglements so they can benefit as costs for batteries and renewable energy slide. Now in vogue: agreements that last 10 years or even less.

“In the next five to 10 years battery storage may be coming in a big way,” Deepak Amitabh, chairman of state-owned power-trading company PTC India Ltd., said in an interview at his office in New Delhi. Distributors don’t want to be stuck in pricey agreements for two decades or longer, so it’s better to reach deals for as little as 10 years, he said. Longer-term power contracts have all but disappeared in the past two years except in the clean-energy segment, according to Amitabh.

India invested in its first overseas battery-storage project in a deal announced earlier this month. One goal is to learn better methods of stabilizing the electricity grid back home as Prime Minister Narendra Modi targets almost tripling renewables capacity to 175 gigawatts by 2022. Unlike stable thermal electricity, green-power supply fluctuates with time of day and seasonal variations, a problem battery storage would help alleviate.

“Why would buyers of power choose to lock themselves in high-priced long-term contracts when they can be reasonably certain of softer prices in the future, either via direct procurement deals with renewable-power generators or at the power exchange?” said Vandana Gombar, global policy editor at Bloomberg New Energy Finance in New Delhi.

Solar and wind have become the cheapest sources of power in the country, with tariffs dropping to among the lowest in the world. Meantime, coal-fired power plants are struggling to find customers and ease a capacity glut.

Around the world, the share of new electricity access supplied by renewables will nearly double to 60%, up from 34% over the past five years (green, blue and yellow columns, below). This pattern is even more extreme in India, where the share of new electricity from renewables will triple to 60%

Coal’s role in providing electricity access “declines dramatically”, the IEA says, providing power to 16% of those who gain access over the next 14 years. This compares to 45% during 2000-2016.

Note that the IEA has been criticised for repeatedly underestimating the rate of growth of renewables, particularly solar. This makes its outlook, in which renewables supply most new electricity access, even more striking.

Role of renewables

If the world wants to meet the Sustainable Development Goal (SDG) of providing universal energy access for all by 2030, then 90% of the additional electricity connections over and above the IEA’s central scenario will come from renewables, its report suggests.

This reflects the fact that the hardest-to-reach populations are those least likely to benefit from grid expansion. For these people, decentralised systems, predominantly supplied by solar (yellow columns, below), offer the “lowest cost pathway” to electricity access.